Echelon Corporation HOLD

ELON : NASDAQ : US$3.79
HOLD 
Target $ 4.50

COMPANY DESCRIPTION:
Echelon is a leading provider of networking control and
utility technology solutions, specializing in advanced
metering infrastructure (AMI) and distributed control
products for the electric utility market.
All amounts in US$ unless otherwise noted.

 

Sustainability — Energy & Power Technologies
TRANSFORMATION LOOKS
INCREASINGLY TANTALIZATINING;
MAINTAIN HOLD, TARGET TO $4.50
Investment recommendation
While the near term remains in transition, we continue to be impressed by
the fiscal discipline, a modest improvement in utility prospects and the
launch of the more pointed Internet of Things platform later. We are
clearly looking for tangible signs of traction (design wins, JV’s, M+A) to
become constructive on shares. Maintain HOLD.
Investment highlights
 The strategic plan continues to move forward, as Echelon embraces
the emerging IoT/M2M market, leveraging its sizable installed base,
brand recognition, and history of innovation. We look for new
products to emerge this year, while aggressive balance sheet control
keeps the opportunity firmly intact.
 Q1 sales are targeted at ~$16-18M (vs. our $17.25M), with non-GAAP
margins at ~46.5-48.5%. Non-GAAP LPS is forecast at ~$0.08-0.13.
Importantly, cash stays firm (~$57M), supporting potential M&A
(Internet of Things) and working capital needs.
 Our 2014 rev/GAAP/pro-forma estimates go to $72.8M/$(0.53)/$(0.34)
from $72.8M/$(0.47)/$(0.29). We introduce 2015E at
$90M/$(0.43)/$(0.25).
Valuation
Our $4.50 price target (from $3) is derived using an EV/sales multiple of
1.5x (consistent with peak/trough in the legacy smart grid market) off our
2015 sales estimate of $90M.
Risks: Near-term financial losses, long and lumpy utility sales, nonresidential
building/leasing trends.

 

 

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